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MarketView UK Monthly Index

CB RICHARD ELLIS

September 2011

SUMMER LULL FOR UK PROPERTY
• The UK property market experienced a slight slowdown in performance during August, with total returns of 0.5% down from 0.6% last month. This slowdown was largely as a result of weakening retail returns, which fell to 0.4% in August, whilst office returns stayed firm and industrial returns improved to 0.7%. There is currently very little in the way of downward pressure on equivalent yields, leaving them unchanged at 6.6%. • Offices were again the best performing sector in August, but returns remain significantly weaker than the figures seen at the beginning of the year. This is a fair reflection of wider market trends, with all three sectors seeing total returns slowing considerably since Q1. • Central London offices remained the strongest sub-sector in August with total returns of 0.8%, but the level of outperformance has been cut dramatically in recent months amid fears over the economic recovery. Capital values were again driven forward by rental growth, but even this was more muted, growing just 0.2%. • Retail performance suffered in August as a result of a weakness in High-street shops, where values fell for a second consecutive month. Industrials saw a mild improvement, with capital growth of 0.1% and total returns of 0.6%. • All Property rental values were flat this month, and remain flat over the year. This continues to hide the diverging trend between a more buoyant Central London office occupier market, and the rest of the property sectors.

Investment Market Returns , YoY % (End August)

Total Return Property Equities Gilts 9.4 7.3 4.3

Capital Growth 3.1 3.8 -0.7

Source: Macrobond, CB Richard Ellis

CB Richard Ellis Short Term Indicators, (3 Month Annualised)

Capital % All Offices Central London Offices Standard Shops Retail Warehousing All Industrial All Property
Source: CB Richard Ellis

Rental % 2.5 6.2 -2.6 -0.2 -0.6 -0.2

3.7 6.9 -2.2 2.1 0.2 1.3

All Property Short Term Indicators

Market Background
3 month annualised % change

Rental Growth (LHS)

Capital Growth (RHS)

• After suffering a 13.9% collapse at the beginning of the month, the FTSE All share rallied over the second half of the month, with a gain of 7.7% leaving the index just 7.2% below the end of July level. • As expected, August was a quiet month for investment into commercial property, in view of the quiet holiday season. This saw just over £1.5bn worth of property bought, a significant weakening on the £2.7bn in the same period last year. Year to date, the investment total stands at £20.3bn, slightly behind this time last year.

15 10 5 0 -5 -10 -15 -20 Feb-09 Feb-10 Nov-08 May-09 Nov-09 May-10 Nov-10 Feb-11 May-11 Aug-08 Aug-09 Aug-10 Aug-11

40 30 20 10 0 -10 -20 -30 -40 -50

3 month annualised % change

Source: CB Richard Ellis

©2011, CB Richard Ellis, Inc.

5% for August. after a 0. Like the wider property market. INDUSTRIAL % Source: CB Richard Ellis Annualised Rental Growth Retail Office Industrial 5 0 -5 -10 -15 -20 Feb-09 Feb-10 Aug-08 Aug-09 Aug-10 Feb-11 Aug-11 Aug-11 Source: CB Richard Ellis Annualised Total Return Retail Office Industrial 40 30 20 10 0 % -10 -20 -30 -40 September 2011 Aug-10 Aug-08 Feb-09 Aug-09 Feb-10 Like the wider property market.5%.1%. with capital values up 0.9% for the sixth month. which has offset declines elsewhere. The normally dominant Central London sector saw rents increase by only 0. with total returns of 6. High Street shop values fell 0.2%. Inc.4% and capital values falling by 0. only marginally ahead of the industrial sector.6%. largely as a result of strength in Central London.7%. Feb-11 Industrial property saw a degree of improvement in August.1% fall last month.1%.2%. Aug-11 Feb-09 Feb-10 Feb-11 Central London offices were again the strongest subsector.2% for the month.6% and total returns of 5. Outer/London / M25 offices saw rents fall 0.3% seen last month.OFFICES Annualised Capital Growth Retail Office Industrial MarketView UK Monthly Index Office total returns held firm at 0. Performance improved in the Outer London / M25 market. This is in response to mounting investor concerns over the outlook for the consumer sector and retail rents. whilst retail warehouses continued to grow in value. retail has seen increasingly subdued performance over the course of 2011.2% in August. whilst Rest of UK offices saw rental values hold firm in August. with total returns of 0. % 30 20 10 0 Aug-08 Aug-09 Aug-10 Occupier markets were more subdued in August. offices have seen market rental values grow by 1.3%. Total returns were 0.7% in August.1% in August. remaining at 7. with total returns of 0.1%. Capital values were unchanged over the month. total returns have been 5.5%.4%. Shopping centres saw zero capital growth and returns of 0. Source: CB Richard Ellis ©2011 CB Richard Ellis. with total returns of 0. following a 0. Office sector equivalent yields remained unchanged over the month at 6. industrial yields stayed flat in August.8% and capital growth of 0.7%. Year to date. as capital values grew 0. offices retained their advantage. with capital growth remaining at 0.3%. RETAIL Retail property performance dipped in August. albeit modestly at 0. producing total returns of 0. with growth in values gradually coming to a halt.7%.1% decline seen last month. with total returns of 0.8% in the year to date. Equivalent yields remained unchanged for All Retail at 6. as renewed economic and financial turmoil impacted on new space requirements. Despite industrial property seeing an improvement in performance this month. Over the year to date the retail sector has seen capital growth of 1.4%. following the 0. -10 -20 -30 -40 . In the year to date.1% in August.1%. The Rest of UK office sector was the weakest office sub-sector. with capital growth increasing to 0. with rental values up just 0.

The UK’s unrevised 0. with the August PMI for the key services sector slowing to 51. with post-2011 contracts all pricing in falls in capital values for the next four years. Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 2014 Source: Markit / CIPS PMI Survey House Prices and Retail Sales 40 30 3 month % annualised change 20 10 0 Annual House Price Growth (LHS) Annual Retail Sales Volume (RHS) Aug-11 12 9 6 3 0 -3 -6 -9 3 month % annualised change -10 -20 -30 Annual IPD Implied Returns from Derivative Pricing 8 7 % Annual Growth 6 5 4 3 2 1 0 Aug-10 May-11 Nov-10 Mar-11 Aug-11 Jan-11 Dec-10 Feb-11 Jul-10 Jun-10 Sep-10 Oct-10 Apr-11 Jun-11 Jul-11 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Source: Macrobond 2011 2012 2013 September 2011 Source: CB Richard Ellis. while the main engines of growth in the Eurozone.4% on a year ago. with the Nationwide index down by 0. with the 2012 annual contract rising from 1% total return to 1. US GDP growth for Q2 was revised down to an annualised 1.PMI Surveys: Manufacturing and Services ECONOMY AND INVESTMENT MARKETS MarketView UK Monthly Index 65 60 50 = no change 55 50 45 40 35 30 Aug-00 Aug-01 Aug-02 Manufacturing Services Global economic conditions are once again giving rise to growing concern. with the BoE reporting mortgage approvals up slightly to over 49. Prices rose slightly towards the front end of the curve.9% from 7.000. GFI . pointing to a picture of increasingly strained household finances.4% in July from 4. while the manufacturing sector showed declining output for the first time in over two years.3% total return for 2013 and 2014. with July retail sales volumes unchanged on a year ago. Property Derivatives Derivative pricing has remained bearish this month. Eurozone and the Far East. pointing to increasing weakness in the labour market. Consumers have also shown signs of increasing fatigue. Output growth has slowed across the US.5% once again this month as was widely expected.5m in the three months to June. Overall however. Unemployment also rose by 38. hopes for some improvement in the third quarter are far from encouraging. The Bank of England’s MPC left interest rates at 0. Pricing remains on the cautious side whilst there are high levels of uncertainty in the wider market. Weaker growth hasn’t relieved the upward pressure on prices.2% growth for Q2 was similarly weak. housing market activity remains very subdued and prices remain under downward pressure. ©2011. the housing market managed to show a modest improvement in July. the weakness across a broad range of economic indicators has raised market expectations of a further round of quantitative easing or government asset purchases in the Autumn if conditions don’t improve soon. For the UK. with the rate of CPI inflation increasing to 4.000 to a total of 2.2% the previous month. Despite these growing signs of renewed economic distress. with the overall jobless rate rising to 7.5% and 2011 contracts up 10bps. Germany and France.3% previously.1 from 55.6% in August and 0. stagnated over the second quarter. CB Richard Ellis. Towards the back end of the curve there was a marginal dip of 20bps.7%. on the back of both weakening output growth and the threat posed by the as yet unresolved Eurozone sovereign debt crisis. Purchases of food and household goods declined over the year. Inc.4 in July. to a price of 4. Nonetheless.0% from 1.

00 10.an adviser strategically dedicated to providing cross-border advice to corporates and investment clients immediately and at the highest level.com David.00 5.1 5. and employ 24.3 2. warranty or representation about it.7 110.00 Note: Prime yields refer to an equivalent yield for a prime (well specified.4 11.1 0.2 6.4 1.4 1.75 5.7 0. July 2011.0 TR %.53 2.3 223.2 Y-o-Y % 0.4 -1.0 236. ensures that we are able to offer a consistently high standard of service across the world.4 7. We have 400 offices in 58 countries across the globe.5 125.3% Nov-10 Dec-10 Jan-11 Feb-11 Jun-11 Jul-10 Oct-10 Apr-11 Source: HM Treasury.4 1.1 0.6 0. For full list of CB Richard Ellis offices and details of services.25 6.7 -0.9 104.1 0.5 0.0 Aug-10 Sep-10 % 1. please contact: Nick Parker David Wylie Nick.© Copyright 2011 CB Richard Ellis CB Richard Ellis is the market leading commercial real estate adviser worldwide .3 -0.3 1.5 0.2 0.4 TR – Total Returns.3 -0.6 0.com May-11 Mar-11 Jul-11 .6 103.2 -0. mns Manufacturing output % Employment growth % Inflation % CPI Q4 Official Bank Rate Q4 % 1.50 6.9 104.PROPERTY INVESTMENT YIELDS. Dec 1999=100 TR CG RG 218. 12 Months CG RG 5.8 100.75 8.3 2.7 1.7 4.3 1. CG – Capital Growth. we have not verified it and make no guarantee.25 Leisure Centres: Prime Offices: West End Offices: City Offices: M25/South East Offices: Major Provincial Offices: Secondary Prime: Distribution Unit Prime Industrial Estate (Greater London) Prime Industrial Estate (Ex Greater London) Older Industrial Estate (20 years old) Equivalent Yields % September 2011 6.2 0.0 221.5 2010 2011 2012 2012 2.4 11.0 7.5 0.8 4.0 Quarterly Data GDP (Q2 2011) Household Expenditure (Q1 2011) Business Investment (Q1 2011) Q-o-Q % 0.0 2.2 5.6 0.55 3.5 -0.50 6.9 240.0 1. Any projections.2 -0. This information is designed exclusively for use by CB Richard Ellis clients. Comparison of Independent Forecasts.6 3. visit www.5 10. RG – Rental Growth KEY ECONOMIC INDICATORS Monthly Data Retail Sales Volume . CB RICHARD ELLIS MONTHLY INDEX.0 -0.8 9.4 -1.000 people worldwide. Martin’s Court 10 Paternoster Row London EC4M 7HP Tel 020 7182 2000 F ax 020 7182 2001 Information herein has been obtained from sources believed to be reliable. It is your responsibility to independently confirm its accuracy and completeness.3 105.5 %.50 6.3 0.00 11.25 4.4 5.8 1. 1 Month CG RG 0.1 0.2 0.3 108.cbre.7 17.6 HM TREASURY CONSENSUS FOR UK GDP 2.7 AVERAGE NEW INDEPENDENT FORECASTS FOR UK ECONOMY (% Y-o-Y) 2011 GDP Private Consumption % Unemployment Q4.00 6.0 -0.inc fuel (Jul) RPIX (Jul) ILO Unemployment Rate (June) Manufacturing Output (Jul) Base Rates (September) Source: ONS M-o-M % 0. While we do not doubt its accuracy.9 -0. and cannot be reproduced without prior written permission of CB Richard Ellis.3 Index.6 0.4 117.6 -3.00 7. Year-to-date TR CG RG 6.75 6.00 5.Parker@cbre.2 0.Wylie@cbre.0 8.2 0. AUGUST 2011 Sectors All Offices CL Offices All Retail Shops Retail W/H Industrial All Property TR 0.8 -1.1 2. Our network of local expertise.9 119.5 100.7 5. well located and rack rented) property let to a financially strong tenant on a lease with a minimum of 15 years unexpired.8 6.4 0. September 2011 For more information regarding the Monthly Index.3 -0. SEPTEMBER 2011 MarketView UK Monthly Index Equivalent Yields % September 2011 Prime Shops Good Secondary Shops Secondary Shops Prime Shopping Centres Best Secondary Shopping Centres Secondary Shopping Centres Retail W/H: Prime – restricted user Retail Parks: Prime – open user Retail Parks: Prime – restricted user Retail Parks: Secondary 4.7 6.com Disclaimer 2011 CB Richard Ellis CB Richard Ellis St. combined with our international perspective.00 6.9 2. opinions.5 2.1 5.00 8.9 0.3 253.0 %.2 0.4 92.00 5.5 3.1 0.3 223.8 0.5 Y-o-Y % 0.4 0. assumptions or estimates used are for example only and do not represent the current or future performance of the market.1 2.3 87.25 8.1 0.1 -0.1 0.0 Actual: +1.5 9.6 111.4 0.5 4.9 2.